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In: Economics

Assume that the City Council in Prescott, Arizona is considering implementing price ceilings on rental units...

Assume that the City Council in Prescott, Arizona is considering implementing price ceilings on rental units based on the number of bedrooms in the unit. The demand function for rental units (on a single bedroom equivalent basis) is given by QD = 120 – 4P and the supply function is given by QS = 2P, where P is price and Q is quantity. The Council is considering imposing a ceiling price on rental units of Pmax = 16.

1) Are consumers of rental-housing in Prescott well-served by this price ceiling policy? Provide a careful economic analysis in support of your claim. In particular, discuss what happens if a regulated price is set that is not equal to the equilibrium price.

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Rahul Sunny answered 9 months ago
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